Mobile & Satellite: Spectrum Allocation - EC under pressure to allow 3G sub-leasing

date: 27 November 2000, source: Joanne Taaffe, Communication Week

The European Commission is under increasing pressure from governments and industry to speed up legislation that lets 3G license holders sub-lease spectrum.

A new EC framework includes a provision to remove obstacles to sub-leasing spectrum by 2002 to 2003, and is intended to help operators recoup some of the high cost of the licenses and discourage them from hoarding spectrum.

But some argue that if legislation is only brought in by 2002 it may be too late to have much impact on the power structure of the European mobile market.

"They've missed the boat (with secondary trading)," said Stephen Pentland, partner at Spectrum Strategy Consultants in London. "Consolidation will be (taking place) over the next 12 months."

As a result, spectrum trading will amount to "sharing among existing licensed operators," he said. Mobile virtual network operators and service providers may be more likely to rent capacity from an existing 3G network than lease spectrum and build their own, he said, adding that an earlier assurance of secondary trading could have taken the pressure off operators bidding in early auctions.

The move to bring in sub-leasing is backed by operators that have won spectrum in 3G auctions and want to make use of the resource they have bought dearly.

"You (operators) need a regime that allows subletting," said Mike Short, chairman of the GSM Association Data Task Force.

As GSM operators in the United Kingdom and Germany can attest, 3G license holders are sitting on a valuable resource. The dilemma is how to maximize return on their investment. Amassing subscribers and charging for new services may seem obvious, but secondary trading could be necessary.

"Trading spectrum is likely to happen," said Ruprecht Niepold, head of the mobile and satellite communications unit at the European Commission.

"There was a demand from the U.K. side to introduce secondary trading. It introduces a flexibility that our (original) text didn't go into."

Forced to sit
With secondary trading prevented by the EC directive, operators are forced to sit on spectrum they could otherwise sub-lease to alternative network operators.

"It encourages the hoarding of spectrum (when) they can't sub-lease it," said Niepold.

The U.K. government, which sold five 3G licenses by auction for #22.5 billion ($35 billion), is taking a lead in pressing the EC to remove obstacles to network operators wishing to sub-lease spectrum.

Although the EC and the U.K. Radiocommunications Agency expect secondary trading of spectrum to become a legal probability within two years, the United Kingdom would like to see regulatory obstacles removed sooner.

"In principle we favor it and would like to proceed more quickly," said a U.K. Radiocommunications Agency spokesman. "But its unlikely before 2002 or 2003."

Many questions are still to be answered, such as whether all holders of spectrum should be able to sub-lease capacity, or only those that bought spectrum licenses. Operators that paid large sums for spectrum may contend that a Finnish operator awarded a license for free should not be able to trade spectrum on the same terms.

"The choice is between blanket sub-letting or only those that won in auction," said Short.

The EC argues that secondary trading is merely an initial step toward a more flexible regime for spectrum allocation in Europe. It says in the longer term it wants to establish an open, unified market for spectrum allocation.

"From our perspective ... the first steps are not directly toward secondary trading, that's just a mechanism," said Jorge Pereira, European Commission - DG Information Society E4 Mobile & Personal Communications & Systems.

"What the EC wants is full spectrum flexibility. In the end we would like to have full spectrum sharing. Anything not being used can be used by anyone."

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